Electricity interconnectors and new power lines

Why do we need new power lines when demand for electricity will not return to boom levels until 2019 at the earliest?

We need new power lines to meet the rise in electricity demand as our population increases and as we prepare for and experience economic growth. It may appear that we have a sufficient number of power lines to meet current and projected demand until 2020, but forward planning is essential. The need for new power lines is based on expectations of what will happen, and their construction requires a long lead-in time.

There are four reasons to build new power lines and expand the electricity network, and the recovering demand for electricity means that all four currently apply to Ireland. These reasons include:

Economic growth - a modern and reliable electricity supply with renewables on-stream is a way of attracting and retaining new industry and jobs;

economies in operation - new dedicated power lines, such as interconnectors, are required to make our electricity system more cost-effective and secure;

exploiting our renewable energy resources – wind farms are the primary way that we will meet our 2020 renewable electricity target, but they are generally situated away from the main centres of population and require a route to where their power is needed;

decarbonising the electricity system and the economy - Ireland has demanding obligations under legislation implementing Europe’s 2020 targets and electricity will play an important part in delivering a sustainable future and decarbonising our energy system.

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Ireland’s Total Electricity Requirement, Historical and Forecast under Low, Medium and High Economic Growth Scenarios, 2006-2025

Why do we need interconnection between the Republic and Northern Ireland?

Interconnection of electricity transmission systems between the Republic and Northern Ireland enables the creation of an efficient single all-island electricity market. This means that consumers North and South benefit from increased competition between power generators and from the reduced need to maintain spare capacity. Eirgid estimates that the north-south interconnector will save consumers up to €40 million per year.

Could we have an electricity system without transmission lines?

No, we could not. Transmission lines and a national transmission system are essential to a functioning electricity system. In the absence of a transmission system, power would need to be generated and distributed locally, which is not economically viable outside of the large population centres. Underground cabling is possible but at greater cost and it is currently being considered as part of an option for the Gridwest project. Ireland’s commitment to a mix of renewable and non-renewable fuel sources in electricity generation will require a reliable national transmission infrastructure in the future.

Why is our power system connected to Britain?

Connecting our power system to Britain reduces the need to duplicate services and provides more competition in the electricity market. It allows us to import electricity when it is cheaper there and to export electricity to Britain on days when we generate more than we need, as we do from wind on windy days. The interconnector to Britain also helps to secure our electricity supply by providing back-up sources of power. At present we import between 8-10% of our electricity needs from Britain and our electricity prices are estimated to be approximately 9% lower as a result.

Who should pay for interconnectors with other countries and why?

In principle, the country that benefits most from an interconnector should meet the cost of that infrastructure. In the case of the East-West interconnector between Britain and Ireland, the Irish consumer has benefitted most because we have access to a much larger market with the effect of reducing prices here by 8-10%. It was therefore publically funded by Ireland and is owned by EirGrid.

At the time it seemed that for the British consumer, access to electricity from the much smaller Irish market would not significantly reduce prices in England. However, the regulator in Britain has recently flagged an interest in a proposal for further interconnection where renewable energy trading was a consideration. Considerable financial support is also provided for these projects from the European Union, because they contribute to the EU’s aim to create a single electricity market across Europe.

Do we really need the interconnectors?

While our electricity system could function without interconnectors, they play an important role in keeping prices down and providing a more efficient power system. Since the East-West interconnector was built, the amount of electricity traded over the interconnector between Ireland and Britain has steadily increased and allowed us to export surplus wind power and buy in cheaper electricity from Britain.

Further interconnection will need to be assessed on a case-by-case basis, but the increased use of renewables such as wind and solar may justify the building of more interconnectors with other countries. If national electricity systems across Europe are well connected, the resulting increased competition is likely to reduce prices.

How efficient will new infrastructure be?

At present, between 7-8% of electricity generated is lost in transmission and distribution. By investing in new technology, we will see the development of a “smart grid” that can better control supply and demand and incorporate intermittent sources of power such as solar and wind. A smart grid will also allow us to switch to a “multidirectional” flow of electricity where power flow can alternate between local sources (e.g. wind power) and central sources depending on usage and weather conditions. The smart grid could make a meaningful contribution to achieving Ireland’s energy efficiency target of 20% by 2020, saving €2.25 billion in energy costs in the process.

Electricity market – payments and levies

What are capacity payments?

Capacity payments are those made to electricity providers for their available generating capacity, irrespective of whether they supply any electricity to the grid. The capacity payment scheme was established as part of the single electricity market (SEM) to ensure that there would always be sufficient spare capacity to supply electricity to meet peak demand. Capacity payments are our insurance policy to prevent electricity shortages. The payment provides a guaranteed, but limited, return to electricity suppliers and so provides an incentive to invest in new power plants. In 2014, capacity payments of €565 million were paid to electricity generators. Plants that are needed to operate only in rare circumstances receive the highest proportion of their revenue via capacity payments.

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Figure 23. Generator Revenue, 2013

Why do some plants receive money while not producing electricity?

During the economic boom of the early 2000s, there were concerns that energy demand would increase to the point where it would outstrip capacity. At the same time, investors were unwilling to build new power stations without a guaranteed return. In response, the Commission for Energy Regulation (CER) ran a competition for the construction of new power plants, which included a minimum price guarantee and a condition that the supplier would still receive payments even if the generating capacity was not needed. During the economic recession, the expected increase in demand for electricity did not materialise. As a result, one of the facilities constructed under the CER competition, Tynagh Energy continued to receive payments while not actually operating and supplying electricity. Approximately €66 million was paid to Tynagh Energy in 2015 but this agreement expiered in March 2016.

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Figure 24. Constraint Payments, 2008-2015

Are there times when we produce too much wind?

Wind-generated electricity has priority access to the national grid over non-renewable sources, so wind energy is generally accepted and distributed within the system. However on very windy days, the electricity generated can exceed the capacity of the system to accept it. In those situations, some of the wind energy providers may be blocked (“curtailed”) from the grid. The proportion of electricity blocked in the past few years has amounted to 3-4% of the wind electricity generated. A constraint payment, funded by the Public Service Obligation (PSO) levy, is provided to wind electricity operators when they are blocked from the grid. This amounted to €123 million in 2013, but the payment is planned to cease in 2017. In recent years, the East-west interconnector has allowed excess wind energy to be exported to Britain, reducing the amount that needs to be paid for curtailment.

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Figure 25. Total System Demand and Onshore Wind Generation 27th April to 3rd May 2016

What is the Public Service Obligation and what does it pay for?

Public Services Obligation (PSO) subsidies are paid to achieve certain policy aims around sustainability and security of supply that would not otherwise be met by the market. In Ireland, the government policy is to encourage renewable sources of electricity, provide for sufficient generating capacity and support indigenous sources of electricity generation. Providers of renewable electricity are granted a minimum price for the power they sell to the national grid. If the wholesale price of electricity falls to less than this minimum, the balance is paid from the PSO levy. It is estimated that this payment will double in the future as more renewables enter the system and we move to achieve the target of 40% electricity supply from renewable sources by 2020.

What is the cost of the Public Service Obligation?

The Public Service Obligation (PSO) levy cost each electricity customer €5.01 per month in 2015/16, or €60.09 per annum. For the period 2015/2016, €325 million was paid annually from the PSO to electricity suppliers. Of that total, €181 million was paid for renewables, €122was paid to peat generators and €47.5 went to operators that were critical to security of supply. It is projected that PSO payments for 2016/17 will increase to €441 million, driven by lower wholesale electricity costs and greater amounts of renewables on the system.

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Figure 27. Public Service Obligation Breakdown 2013-2017

Why do we guarantee prices for some generators and not for others?

Price guarantees have been granted to some electricity generators to achieve certain strategic objectives for our electricity system. Minimum guaranteed pricing helps to support the development of renewable electricity by reducing the uncertainty for investors and lowering the cost of capital to develop renewable projects. Similarly, minimum pricing supports the development of spare capacity in the system to allow for future growth. As that capacity may not be fully utilised, investors need some guarantees to develop these projects and minimum pricing provides this. The other price-guaranteed energy source is peat. As we are an island nation that imports virtually all our fossil fuel, it was deemed strategically important to have electricity generating capacity from locally sourced fuel.

How does the PSO rise or fall when a) gas prices are high, b) gas prices are low, c) wind generation is high, d) wind generation is low?

When gas prices are high, the wholesale price of electricity exceeds the minimum price guaranteed to preferential suppliers (wind, capacity, security), and payments from the PSO are reduced. When gas prices are low, such that the wholesale electricity price is below the minimum price guarantee, payments from the PSO increase to compensate preferential suppliers for the price difference, or to cover their costs when not running their plants. When wind generation is high, payments from the PSO are increased to support the increased amount of wind energy coming into the grid. More wind energy also pushes down the wholesale price, so increasing the PSO further to compensate other non-wind, preferential generators. When wind generation is low, the PSO contribution is reduced, because the guaranteed price paid to wind energy is reduced. In addition, less wind energy means that the overall wholesale price of electricity may increase, which can further reduce the PSO paid to other, non-wind preferential generators.

Electricity system

Do the power plants that provide our electricity operate all the time?

Power plants operate in response to demand, but electricity must be produced all the time to maintain the quality of supply and to achieve the lowest wholesale price for the commodity. Our needs change seasonally and daily, and a surge in demand must be met by an increase in supply in real time, so some fast-acting generators are essential. These ‘peaking plants’ are expensive to operate, but they do provide a reliable supply at an acceptable cost. The System Operator (SO) prepares for surges in demand by having some plants in a state of readiness. The choice of which plant is “dispatched” to meet the additional demand depends on where it is located and the price of its electricity. Generators that are located at some distance from the centre of demand can only be dispatched if the grid has sufficient capacity. In general, the stronger the grid, the greater the freedom is for the SO to dispatch the lowest cost plant as determined by the Market Operator and by doing so achieve the lowest wholesale price.

How is it decided which plants produce our electricity at any given time of the day?

The schedule of plants chosen to satisfy the forecast electricity demand is determined every day and 24 hours in advance. It is adjusted in real time in response to unforeseen events. The price of a plant’s power is a crucial determinant of whether it will run, but its location is also critical because congestion on the grid is a serious concern. Low-carbon renewable energy generators, such as wind and biomass, are given priority access to the grid. If they are available to run and are generating power, the System Operator must accept it. For every half-hour of the day, the Market Operator estimates the likely demand and, after taking account of any wind power that will be produced, schedules sufficient generation to meet it. Some types of plant such as the coal-fired station at Moneypoint are expensive to build but cheap to run, so their bids are competitive and these base-load plants run most of the day producing electricity. Combined heat and power plants are highly efficient in their fuel use (defined as over 80%) and so have priority access to the grid. Although most fossil-fuel generators compete on price, some have valuable technical characteristics that make them competitive in situations where, for example, the power demand is changing fast.

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Figure 30. Illustration of Generator Bids and the System Marginal Price (for illustrative purposes only) if System Demand is equal to 355 MW

Is there a way to avoid paying such high prices to electricity generators at peak times?

A way to avoid the high payments to generators at peak times is to reduce the spike in the amount of electricity used at such times. Time of use (TOU) tariffs, such as the night saver options offered by Bord Gais Energy and Electric Ireland, can help consumers to save money by using less electricity at the most expensive times. This in turn reduces the cost of providing the power. As a supplier has to pay premium prices for electricity at peak times, it is in his interest to persuade users to reduce their demand at these times and to provide incentives for his large customers to do so.

What types of power plant supply our electricity?

There are three types of power plant operating in Ireland – base-load, mid-merit and peak generators. Base-load plants, such as the one at Moneypoint, provide the bulk of the country’s electricity needs. They are the lowest-cost plants and are most economically used at maximum capacity. Mid-merit generators supply power when the daily electricity demand picks up in the morning and they shut down when the demand drops off in the evening. Mid-merit, or load-following, plants adjust their output as demand fluctuates during the day. As more wind is connected to our electricity system, the requirements for and the demand on load-following plants will grow because of the natural variability of this type of power. Peaking power plants operate only during times of highest demand, which are around the start and end of the working day. However, the duration of operation for peaking plants may vary from hours per day to less than a couple dozen hours per year. Peaking power plants include pumped storage hydro-electricity and open cycle gas turbine power plants.